Zomato Shares On Watch After Softbank Intends To Sell Its Entire Stake With Food Delivery Startup.

In the following months, Japanese investor SoftBank intends to totally offload its stake in food tech behemoth Zomato through open market deals. This comes after  SoftBank made a profit of more than INR 100 Cr by selling a piece of its ownership in the firm earlier. 

As part of the M&A last year, Zomato issued new equity shares to all of Blinkit’s selling stockholders. Following the sale, Zomato negotiated a 12-month lock-in period for these shares, compared to the six-month statutory lock-in period. The majority of these shares are held by three venture capital firms: Softbank, Sequoia, and Tiger Global. The residual share has a 45-day lock-up period, and Kotak Securities is the deal’s only book runner. Not only Softbank, Tiger Global’s Internet Fund has also sold its stake in Zomato. 

Let’s see how the stock traded amid the waves of offloading shares by investors.

According to the most recent ownership pattern available with the markets, as of 30 June 2023, the public owns 97.91% of the corporation, while the employee trust owns 2.09%.

The stock has also gained more than 65% year to date and more than 85% in the last six months. The stock, meanwhile, has dropped over 30% in the last two years. 

• Zomato shares rose 5.5% to Rs 96 on the BSE last Monday after news of a block sale taking place on the counter.
• Zomato’s stock rose 3% to Rs 101 on the BSE on Thursday.

After suffering a bear punch for most of 2022, it appears that online meal delivery aggregator Zomato has staged a strong recovery on Dalal Street. Not only has the stock recovered significantly, but so have the earnings, with the firm announcing its first-ever net profit in the June quarter. This was much ahead of the company’s previously stated deadline of the end of FY24. The company became profitable in the first quarter of FY24. Zomato announced a total net profit of Rs 2 crore for the quarter ending June 2023, compared to a loss of INR 186 crore in the previous fiscal year’s similar period.

Meanwhile, income from operations for the reporting quarter was Rs 2,416 crore, increasing over 71% year on year (YoY) from Rs 1,414 crore reported by the company in the year-ago period.

According to Trendlyne data, the stock’s target price is Rs 102, representing a 2% upside potential from current market levels. The stock has a ‘Buy’ consensus recommendation from 25 analysts.

Zomato shares are also trading above their 5-day, 10-day, 20-day, 30-day, 50-day, 100-day, 150-day, and 200-day moving averages.

According to Sneha Poddar, associate vice president at Motilal Oswal Financial Services, the company’s robust results were underpinned by good revenue growth and a substantial rise in margins. 

• Higher take rates aided Zomato’s profit improvement, while revenue growth was aided by the robust meal delivery business. While Blinkit was subdued in Q1 due to the slowdown caused by interruptions in April and May, the company is expected to return in the current quarter.
• The increased take rates demonstrate the company’s effectiveness in cross-selling to restaurants, which is a significantly more sustainable income source than raising take rates.
• Zomato is likely to perform well across the board as competition in the meal delivery and rapid commerce verticals becomes more accommodating.
• The firm is likely to break even in the following four quarters, owing to increased wallet share.
• Over the next two years, revenue in the food delivery sector is expected to expand at a 25% CAGR.

Poddar is also highly positive on Zomato from a long-term perspective and has a “buy” rating on share with the price target of Rs 125. This suggests an upside potential of nearly 28% from the current levels.

Conclusion.

Suppose SoftBank proceeds with its proposal to sell its Zomato shares in block agreements. In that case, it may have a significant impact on the company’s stock performance and the broader investment environment, either positively or negatively.